Sotera Health Company (NASDAQ:SHC) Q2 2023 Earnings Call Transcript
Sotera Health Company (NASDAQ:SHC) Q2 2023 Earnings Call Transcript August 6, 2023 Operator: Good morning, and welcome to the Sotera Health Second Quarter 2023 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Vice President and Treasurer, Jason Peterson. Please go ahead. Jason Peterson: Good morning and thank you. Welcome to Sotera Health's Second Quarter 2023 Results Call. You can find today's press release and accompanying supplemental slides on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will be available in the Investors section of the Sotera Health website. On the call with me today are Chairman and Chief Executive Officer, Michael Petras and Chief Financial Officer, Jon Lyons. During the call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties.
Tonhom1009/Shutterstock.com The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted EPS, net debt, adjusted EBITDA margin, segment income margin and net leverage ratio in addition to constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up so that we can give everyone an opportunity to ask questions. As always, if you have any questions after the call, please feel free to reach out to me and the Investor Relations team. I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras. Michael Petras: Good morning, everyone, and thank you for joining Sotera Health's Second Quarter 2023 Earnings Call. I would like to take a moment to introduce our newly appointed Chief Financial Officer, John Lyons. John comes to us from Owens Corning, a $10 billion Global Building and construction materials leader, where he served in various executive roles. Prior to John's time with Owens Corning, he served in several senior leadership positions at Cardinal Health after beginning his career in public accounting. John brings a wealth of financial acumen as well as health care industry experience so Sotera Health and we're excited to have him on board. I would also like to take a moment to thank Michael Biehl for his contributions as the interim CFO for Sotera Health. Michael, thank you for your commitment and support over the past year and leading the company's finance organization. As previously communicated on June 30, the settlement funds of approximately $408 million related to the Illinois ethylene oxide claims were released from escrow and on July 6, the claims against Sterigenics of the 879 claimants who opted into the settlement were dismissed with prejudice. Although we continue to believe these claims were without merit, we are pleased the settlement is finalized 1 month ahead of schedule, thanks to the efforts of our legal team, and with a 99.7% participation rate. In a moment, John will review our second quarter 2023 results in more detail. But first, I would like to review a few items from the quarter. Total company revenues declined 4.3% and adjusted EBITDA declined 5.6% compared to the second quarter of 2022, driven primarily by the expected timing of Nordion's Cobalt-60 harvest schedules. We delivered adjusted EPS of $0.21 for the quarter, which is a $0.06 decrease from the same period last year. Sterigenics, our largest reporting segment delivered 5.6% top-line growth for the second quarter of 2023. Sterigenics continues to service our customers even though the global economic outlook is challenging with lingering customer inventory and supply chain challenges and inflation. Although Sterigenics volumes are lighter than planned, the Sterigenics team is prudently managing costs, which has contributed to a 310 basis point segment income margin improvement compared to the first quarter of this year. During the quarter, the team completed two expansion projects, and they continue to make progress on our EO facility enhancements in North America. These industry-leading enhancements demonstrate our commitment to ensure best-in-class emission controls for our employees, customers and the communities in which we operate. Nordion, our other reporting segment within the sterilization services business experienced a 37% year-over-year revenue decline due to the timing of Cobalt-60 harvest schedules. We have good visibility into the timing of Nordion's revenue as it's tied to the harvest schedules from our Cobalt-60 suppliers. As previously conveyed, Nordion's 2023 revenue will be particularly lumpy as approximately 75% of the revenue is expected to occur in the second half of the year with approximately 50% of the year's revenue occurring in the fourth quarter. Nordion does continue to source a portion of its Cobalt-60 supply from Russia. At the start of the year, we stated that a total supply disruption from Russia could potentially result in a 0% to 3% impact on total 2023 Sotera Health revenues. At this juncture in the year, we are confident that there is zero risk to Russian supply impacting total Sotera Health full year 2023 revenues. The Cobalt-60 supply chain is a complex one, and I'm proud of the continued efforts by our Nordion team to ensure availability. Cobalt-60 is used to sterilize approximately 30% of the world's single-use medical devices and is critical to the global health care community. This is a great example of how we play a critical role in safeguarding global health. Nelson Labs, our lab testing and advisory service business experienced sequential growth and expanded margins of approximately 680 basis points over the first quarter of this year. Revenues in the second quarter of 2023 were 2.8% below the prior year quarter, which had experienced record revenues. However, volumes continue to be challenging in our lab business. In light of the softer-than-expected volumes, the Nelson Labs team is actively managing costs while keeping focus on quality and customer satisfaction. Due to the volume softness at Sterigenics and Nelson Labs that we expect to continue, we are adjusting our full year 2023 outlook. We now expect full year net revenue growth to be in the range of approximately 3% to 5% and full year adjusted EBITDA growth to be in the range of approximately 3% to 6%. We are confident that we have taken into account weaker volumes and other market dynamics reflected in this adjusted range. We will continue to concentrate on executing our strategy to best serve our customers around the globe. Prior to John walking us through the financials in more detail, I'd like to take a minute to underscore our mission safeguarding Global Health, which is at the heart of our work. We performed government mandate sterilization and validation testing for medical and pharmaceutical products used each and every day. We supply Cobalt-60 for radiation oncology professionals to help treat brain cancer. In addition, we provide critical technical and regulatory expertise to solve our customers' product development and sterility needs. Our indispensable services helped to protect millions of patients and health care providers around the world. One such example of how we shape our Global Health is via our team at Nelson Labs Europe, which performed extractable leachable studies for a single-use nasal spray using life-saving rescue treatment of patients experiencing an opioid overdose. In the spring of 2023, the product received FDA approval for the U.S. market. The societal impact of this FDA approval is significant as overdoses caused by the use of synthetic opioid drugs, including fentanyl, unfortunately, remain a major and chronic problem in our society. Another example of our teams fulfilling our mission is highlighted through a video link located on the Safeguarding Global Health slide in our second quarter 2023 earnings presentation released this morning and available on our Investor Relations website. I encourage you to watch his video to learn about how Sterigenics and Nelson Labs work in conjunction to ensure critical sterilization and validation testing are performed for the successful delivery of vaccines around the world. Now Jon will walk us through the financials. Jonathan Lyons: Thank you, Michael. I want to begin by saying how excited I am to join Sotera Health, which holds such a unique position in the global health care supply chain. I look forward to working with our talented team and also look forward to meeting many of you in the near future. I will begin by covering the second quarter 2023 highlights on a consolidated basis and then provide some details on each of the business segments, along with updates on capital deployment and leverage. I will conclude with some additional comments on our updated 2023 outlook. On a consolidated total company basis, second quarter revenues declined by 4.3% as compared to the same period last year to $255 million. This equates to a 4.1% decline on a constant currency basis as foreign exchange headwinds are moderating for the company. As mentioned on the first quarter call, we expect continued moderation of foreign exchange headwinds and expect foreign currency to become a tailwind during the back half of the year. Adjusted EBITDA declined by 5.6% compared to the second quarter of 2022 to $128 million. Adjusted EBITDA margins were 50.3%, representing a 73-basis point decline from second quarter 2022 levels. The decline in margins is driven by the lower volumes from Nordion and Nelson Labs experienced versus Q2 2022. Importantly, EBITDA margins were up sequentially in Q2 on the improvement in Sterigenics and Nelson that Michael referenced earlier as well as higher volumes from Nordion. Adjusted EPS was $0.21, a decrease of $0.06 from second quarter of 2022, the result of lower EBITDA and higher interest expense versus the prior year. Net income for Q2 2023 was $24 million or $0.08 per diluted share compared to net income of $30 million or $0.11 per diluted share in Q2 2022. Our reported interest expense for the second quarter of 2023 was $31 million, which is an increase of approximately $17 million versus the same period last year. The increase is driven by higher rates on our variable rate debt as well as incremental interest on our $500 million term loan that closed in Q1 of this year. Now let's take a look at our segment performance. For the quarter, Sterigenics delivered 5.6% revenue growth to $167 million as compared to the second quarter of last year. Revenue growth drivers for Q2 2023 included favorable pricing of 6.7% and favorable changes in foreign exchange rates of almost 1%, partially offset by unfavorable volume and mix of 1.7%. Compared to the prior year quarter, segment income for Q2 2023 increased 7.5% to $91 million and segment income margins increased by 100 basis points to 54.9%, driven by favorable pricing, partially offset by unfavorable volume and mix and inflation. Nordion's second quarter revenue declined by approximately 37% to $32 million compared to Q2 2022 which we expected based on the timing of Cobalt-60 harvest schedules. Nordion's revenue decline was driven by unfavorable impact from buying a mix of nearly 39% and changes in foreign currency exchange rates of almost 4%, partially offset by a favorable impact from pricing of 5.7%. Segment income declined 40.7% to approximately $18 million and segment income margin decreased 380 basis points to 55.6% compared to the same period last year. Segment income and segment margin changes versus second quarter 2022 were due to the unfavorable volume and mix offset by favorable pricing. For Nelson Labs, second quarter 2023 revenue declined by 2.8% to $57 million compared to the second quarter of 2022. Revenue was impacted by unfavorable volume and mix of 6.9%, partially offset by a 3.6% benefit from pricing and favorable changes in foreign currency of almost 1%. Nelson Labs second quarter 2023 segment income decreased by 8.6% to $19 million and segment income margins contracted by over 200 basis points to 33.9% versus second quarter 2022. This decline was due to unfavorable volume and mix as well as inflation partially offset by favorable pricing. I will now turn to cash generation, capital deployment and net leverage. As Michael mentioned earlier, on June 30, 2023, the settlement funds of approximately $408 million related to the Illinois ethylene oxide claims were released from escrow. This resulted in net cash used in operating activities of approximately $303 million. When adjusting for the $408 million outflow, cash provided by operating activities was a source of over $100 million for the first 6 months of 2023, which was in line with the same period last year. As of June 30, 2023, we had approximately $635 million of available liquidity, which includes $263 million in unrestricted cash and $372 million of available capacity on our revolving line of credit. As expected, our net leverage ratio at the end of Q2 2023 was 4.2x. This was an increase from the year-end 2022 level of 3.2x due to the new $500 million term loan issued in connection with the ethylene oxide settlement and the associated $408 million payment. Our capital expenditures for the second quarter 2023 totaled $53 million. Growth CapEx and facility enhancements drove the increased investment versus Q2 of last year. Now turning to guidance. We are adjusting the full year 2023 outlook we provided in February. We now expect total revenues to be in the range of $1.035 billion to $1.055 billion from our previous range of $1.055 billion to $1.09 billion, representing an annual growth rate of approximately 3% to 5%. From a quarterly shape perspective, as Michael mentioned, we anticipate that approximately half of Nordion's full year revenue will occur in the fourth quarter. In addition, we expect Sterigenics volumes to slightly increase throughout the remainder of the year and Nelson Labs revenue to remain relatively flat sequentially. For the full year, we expect adjusted EBITDA to be in the range of $520 million to $535 million from a range of $530 million to $550 million, representing an annual growth rate of approximately 3% to 6%. The tax rate is now expected to be in the range of 30% to 32% from our previous range of 30% to 33%. Weighted average diluted shares remain in the $283 million to $285 million range. Adjusted EPS remains in the range of $0.78 to $0.86. We now expect capital expenditures to be in the range of $200 million to $215 million, at the upper end of the previous range of $185 million to $215 million driven primarily by increased capitalized interest from higher borrowing costs. Lastly, we expect net leverage to finish the year at or below 4x. Now I'll turn the call back to Michael. Michael Petras: Thank you, John. As we move to Q&A, I want to reemphasize that Sotera Health is focusing on executing our strategy and is dedicated to our mission of Safeguarding Global Health. At this point, operator, let's open the call for question and answer. See also 25 Most Powerful Passports in the World and 15 States That Produce the Most Corn.
Q&A Session
Operator: Thank you. We will now being the question-and-answer session. [Operator Instructions] And the first question will be from Patrick Donnelly with Citi. Please go ahead. Unidentified Analyst: You have Brendan on for Patrick. Thank so much for all the clarity with the revised guidance. I actually wanted to ask on the EO settlement in Illinois, with the 3 claimants that decided to opt out, any idea what the timeline is moving forward? Michael Petras: Good morning, Brendan. It's Michael. No, we don't. We're waiting on the court to tell us the timelines and scheduling plans. Just so it's clear for you and others, we had the option to walk away on the deal, but we went ahead and reviewed the claimants and all the fact sheet around that, and we feel very confident about moving forward with the settlement with those three opt-outs. Unidentified Analyst: Great. Thank you. And then, second question is a follow-up on how should we think about pricing in the second half of the year given the reduced volumes? Michael Petras: We've said along this business is about 3.5% to 5% price. I think you ought to feel confident that it will be in that range looking forward. Operator: And the next question will be from Sean Dodge from RBC Capital. Please go ahead. Sean Dodge: Thanks. Good morning and congratulations, Jon. Glad to have you here. Michael, the sequential improvement in Sterigenics margins, can you just walk us through in a little bit more detail what drove that? And then as we think about the expectation that volumes there will be a little bit softer than maybe initially contemplated, how much adjustment or maybe how much more adjustments than you make to that cost structure in the short-term to try and right-size for that? Michael Petras: Good morning Sean. We'll continue to be efficient as best we can in our operations as we look across all 3 businesses as the volume softening. We've had some challenges, as you've probably seen and heard in other areas that inventory destocking and inventory levels of some of our customers. But we feel pretty good about the margin levels and consistent performance we get out of Sterigenics. There isn't huge flexibility on that cost structure. There is some labor aspect within those operations, but they're not large operations. If you take a given facility, 30, 40 people in any given facility, it's not like there's 400, 500 per facility. So there is some limitations on that. But the team has done a really nice job on operating leverage, and we continue to get price in that business. So we feel good about the margin levels within Sterigenics. Sean Dodge: Okay. Great. And then on the EO emissions, the regulations there, any more updates or thoughts on the proposed rule there from the EPA and what the final rule could look like? And I guess have you been in communication with the EPA as the proposed rules were released? Michael Petras: Yes. So we submitted comments and I think there is probably, in total, something like 40,000 comments across the industry. Our expectation is the EPA, they're working on their consent orders. So we expect them to have some type of adoption of a NESHAP by March 2024. That's the current timeline that we're expecting to see final rules. We've had conversations with the regulators through different trade groups. They're aware of the inputs from us as well as many others. Operator: And the next question is from Dave Windley from Jefferies. David Windley: Michael, we've talked in the past about kind of the volumes that the industry, the kind of broader health care industry is seeing on the medtech side and amongst medtech hospitals, et cetera, there's been talk about improvements in those volumes and you've commented about kind of the disconnect between that and what you are seeing. I wondered if you could comment on that, what indicators you're seeing in kind of ahead of you that make you think that the softness that you're experiencing is going to continue and perhaps is pricing -- are customers showing any sensitivity to the price that you're taking? And is that affecting volumes at all? Thanks. Michael Petras: Thank you, David. Hospital volumes have been rebounding and returning to pre-pandemic levels and many facets around the world, we're seeing that we do see inventory pressure at our customers. We see that, as I mentioned last quarter, we're seeing to continue into this quarter. We'll see that probably moving forward into the next quarter as well. So we've been thoughtful on how we look at our outlook on that side. That doesn't mean we're not seeing improvements in cardiac devices or orthopedic. It's just when you look at it in totality, there's categories that are down, particularly when you look at PPE, or you look at surgical kits and areas like that, where there's lots of inventory buildup because people are scrambling to get it during the COVID time period. So I don't want you to walk away thinking that we're seeing it across the board. We've got significant customer growth in many, many customers in the categories I just referenced. As far as price, listen, that's always a conversation we have with customers or somebody on the other end of that conversation. We feel confident about our ability to continue to get price because of a great service we bring and the criticality of our services. But that's always a delicate conversation. Sterigenics in the quarter continue to have a nice quarter and that side, the volume and mix was just a little softer. But we factored it into our thinking going forward. And we think, as I mentioned just previously, when asked, the company in total will get 3.5% to 5% price, depending on which business you're talking about in our outlook. David Windley: Right. Okay. Great. And then maybe relatedly, but bigger picture on your guidance. Your margin implication in the new guidance is not a lot but slightly higher, in fact, than where it was in the past. So you're kind of taking cost out faster than the revenue decline. Could you talk in a little bit more detail about the areas where you're able to do that without further implicating or further compromising revenue?
Michael Petras: Yes. David, we're going to continue to do the right things around cost and make sure there's a balance here of taking care of our customers. But this is not a cost play. This business, in total, as we've talked about many times, there's a high single-digit organic grower. We feel confident in our ability to return to those levels when we get through this abnormal time period, if you will, with some of the destocking and bioprocessing challenges that are out there. I mean bioprocessing isn't a huge segment for us, but it does impact us as well, particularly in the Sterigenics side and a little bit in Nelson. When we look at our margin rates, we feel pretty confident that they're going to return to historical levels as they did in the quarter that you saw here. The first quarter was abnormally low but as we messaged in the past, that's always our lowest quarter of the year. But I want you to think this is a big machete ripped a bunch of costs out play. That's not what this business is about. We feel confident in our ability to continue to grow this business in high-single digits and work through this current cycle we're in. So I just want to be clear with that, David. We'll continue to drive efficiency, Mike and Joe, in particular, our working operating efficiencies in our time. And as you may recall, late last year, we built up quite a bit of talent within the Nelson side to address potential demand that would come because we're really focused on service. Since that demand has not come through as strongly as we like, we've appropriately let some of those head counts, if you will, trade down on a natural level. But I don't want you to think we're getting super aggressive and just taking a bunch of costs out. Operator: The next question is from Luke Sergott from Barclays. Please go ahead. Luke Sergott: Just a follow-up on Windley's question there. So on the volume side, you mentioned a little bit of bioprocessing. Can you kind of break out where the weakness was med device versus the pharma non-devices business that you guys have? Michael Petras: So I would just say, Luke, on bioprocessing, we see that in the Sterigenics business mostly. It's not a huge portion, but it's a good mix for the company. That industry, as you've seen with some of our customers' have publicly gone forth in the last weeks, they continue to struggle with volumes. So that would tell you that's where we're seeing it. We also have some food and cosmetics within the Sterigenics side, that's been a little softer in the current cycle and then also medtech. On the lab side, it's med device and some bioprocessing and some of the pharma side as well biopharma in particular. Luke Sergott: Okay. Any quantification on how the bioprocessing volumes are down? Just to frame it and then I have a follow-up on like your outlook. Michael Petras: Yes. They're down significant double digits [Technical Difficulty] probably 30% or so. Luke Sergott: Okay. That's helpful. And on the recovery in the back half, you talked about Steri volumes improving sequentially. Can you just give us a sense of how the quarter paced out, what your exit rates were? Anything that gives you that confidence where you can say things are going to start getting better and step up. Michael Petras: Yes, there is a cyclicality in this business a little bit. As you saw, first quarter to second quarter. When we look at the third quarter, I'll take you Sterigenics, if you look at the third quarter, we'll see a slight improvement, slight, if you will, versus second quarter and then slight improvement again in the fourth quarter. And then on the Nelson side, obviously, on the Nordion side, we gave prepared remarks on that 75% of the revenue will be in the second half with 50% of the total year's revenue will be in the fourth quarter. So you could kind of figure how that. It's a big hockey stick, which we knew all year long. And the Nelson side, you're not going to see significant growth when you look at it at the back half of the year from the levels that we were at here in the second quarter. Third quarter will be a little lighter than the fourth quarter when you think about it that way. Operator: And the next question is from Casey Woodring from JPMorgan. Casey Woodring: As a follow-up to the Nelson point, it looks like Nelson revenue came in, in line with expectations today. So just wondering if the new guide is contemplating a slower recovery in Nelson in the back half than maybe what you had originally thought, guiding the flat revenue here sequentially? Or was the revised guidance here mainly lower Sterigenics volume? And then, just what are you hearing from customers in Nelson, any sort of order trend commentary that you can give so far through 3Q. Michael Petras: Yes. Casey, thank you. I would say on the both Nelson and Sterigenics have been factored in. The softness have been factored into the guide, consistent with the comments I just made a little bit ago, you'll see third quarter a little lighter than you see the second, and you'll see fourth quarter more in line with kind of a second. So you'll have a relatively flat, if you will, second half of the year versus where we finished second quarter. As far as what we hear from customers, one of the things we really are obsessed with is quality and service, making sure our Net Promoter Scores, we continue to see improvements in stability in that area, which we're proud of. Hit or miss, we've got some customers that have not made some new product testing a high priority for them.
So that does have an impact. We know MDR has slowed down a little bit in Europe, which was having a big impact. And then we've done a really nice job in our biopharma area over the last couple of years, and that's a little choppier than we'd like. But overall, we're really confident on where the Nelson business goes long-term. You also saw the step improvement in margin in the second quarter that we told you to expect being the first quarter is always the lowest. And when you look at where those margin levels are at. That's pretty consistent with what we see here near term. But in the midterm, we expect it to get to -- mid- to longer term, we expected to be in the mid-30s as we've told you in the past. Casey Woodring: Got it. And then just a couple of quick follow-ups. So CapEx expectations are ticking up a bit on the year. Curious if that has anything to do with further facility upgrades following the EPA proposal or if it's something else. And then just on leverage, how should we think about the cadence of debt paydown over the next few quarters, particularly important here given the rising interest rate environment? And then what should we be modeling for interest expense for the back half of the year? Thank you. Jonathan Lyons: Yes. Let me unpack a few of those. I think taking in turn, I think your first question was around CapEx. We've got about $100 million we've spent through the first half of the year. Really, all our programs are on track. We're out in front, I think of the EPA regulations a little bit as we've been going on in our facility enhancement solution. So there's no real change on what we've been doing there. We're executing our plans and really driving that improvement across our network. The biggest thing that changed is we have this rising rate environment is -- and some pretty extensive CapEx programs as we have an uptick in capitalized interest that's pushing us into the second top end of the range. And to give you a flavor, it's a little north of $10 million in total capitalized interest for the company for this year. I'll take your last question, failing to remember the second one right off the top of my head, around debt paydown, or actually that was the second question, sorry. We're evaluating a little bit of debt paydown. We feel really good. The team did a nice job by giving the term loan in place and improving our liquidity position. So we feel really good about the liquidity position that we have. And we're considering debt paydown as we look at the back half of the year and over the next year, but no immediate plans just yet. And then just lastly, as you think about interest expense, we do expect an uptick in interest expense in the second half. There was about $60 million of interest expense in the first half. We'd expect about a 40% increase versus that number in the second half. And it's really driven by a couple of factors, most notably the increasing rate environment we are in, and we have some hedges that were advantageous that are rolling on a little more advantageous than the hedges that we have remaining. And then, we have the annual or a full 6 months of the term loan that came in at the beginning of February. Operator: And the next question is from Matthew Mishan from KeyBanc. Matthew Mishan: I guess that you completed two expansion products in the quarter? Does the softer volume environment impact your ability to kind of build those over the near term? Michael Petras: I'm sorry, Matt, I didn't hear that last part, you trailed off. Matthew Mishan: All right. Does the softer demand environment impacts your ability to kind of fill those -- that fill that extra capacity over the near term? Michael Petras: Over the near term, no, actually, one of those is actually doing very, very well. So I would say not. Matthew Mishan: Okay. And then, Michael, I think Nelson Labs has been a recurring negative theme for almost a couple of years now. I guess how much time do you personally plan to spend on Nelson Labs in the second half like digging in on that business?
Michael Petras: I dig in that business very frequently. I would just make sure we understand that, one of the things we've talked about in the past, that business has been a consistent performer pre-pandemic. It was probably the mid-30s in margin rates. We got a big bolus of volume that came in PPE that was great mix that we really did a great job digesting. It took our margin rates up significantly higher than our expectations. We were able to execute against that. And coming out of that, it's been a challenging environment with labor and volume. But I'd say overall, I spent quite a bit of time there, but Joe and the team doing a really good job. Lots of good work in growing our pharma business and our presence there continue to drive customer satisfaction. And really, overall, the thought leadership they bring across the industry in the company has been good. That sort of volumes we'd like though, so we've got to continue to work on that but it's something that we all spend time on making sure we're doing the best we can and taking care of our customers in that segment. Operator: [Operator Instructions] The next question is from Michael Polark from Wolfe Research. Please go ahead. Michael Polark: Another twist on the guidance update. Michael, to your credit earlier this year, you were calling out potential destock in amongst device customers, you were saying that ahead of your close peer who is now also saying it. And so I look at the quarter and you missed the Street a little bit. You hit us. Sterigenics was again, a little light versus the Street in line with us. If you hadn't told me any adjustment to the full year, I would have, I think, with the straight face been able to pencil out the back half as it previously was so kind of getting back to your old range. And so look, thematically, you seem to have anticipated some of these challenges. I'm just wondering what changed. Is it just thematically, you had it numerically, it was softer and that's the answer? And maybe bring in John here. John, just curious if there's kind of a change in guidance philosophy now that you're in the seat. So any color on this front would be great. Michael Petras: Yes. Thematically, the time when we talked last time, Mike, we saw some concerns around the softness, but you don't know exactly -- as we've talked about in the past, we don't know exactly where our customers' inventory levels are. We've got thousands of customers on the Sterigenics side, and how that's going to play out. It's a really mixed bag. As I mentioned earlier in this call, we've got some categories that are doing really, really well. And then, there are some others that aren't in just the impact of that. I think to your point, thematically, we've seen it. And numerically, we wanted to make sure we're being thoughtful as we give guide the rest of the year based on what we're seeing. But we are still very bullish on this business overall and our ability to continue to deliver significant growth year in and year out. It's just right now, we want to make sure we're being responsible in messaging to you. John can give you reaction to philosophy and guidance but -- Jonathan Lyons: Yes. My initial reaction is that Michael and I are very much aligned on our approach to this. We want to tell you what we see in a timely manner. We want to look down the field and make sure we're telling you what we see and hit the numbers that we put out there. It's very important to us, and we'll continue to work at it. Michael Polark: Helpful. For the follow-up, just can you refresh us on just Sterigenics capacity expansion projects? How many are in process and over the next, say, 18 months, what do you expect to start going live and filling up? Michael Petras: Yes. So we've got four of them still in process, and those will start rolling out. One late this year and then a couple into next year and the following year. Operator: And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Michael Petras for any closing remarks. Michael Petras: Great. Thank you, Chad. Thank you, everybody, for joining us this morning. I appreciate your time and support ongoing and have a great day. Thank you. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
